What is working capital?
Working capital measures the surplus (or deficit) you have to keep your business afloat, without needing to sell assets, borrow, or add money into the business.
The more working capital you have, the easier it is to fund growth or weather any downturns. Your working capital figure can be reached by taking your current assets minus your current liabilities.
To calculate your working capital, use the following template: Cash + debtors + stock + work in progress – creditors – taxes owing.
The impact of COVID-19 may mean your working capital has taken a hit, so now is a good time to review the processes you already have in place. You may also want to consider the following strategies:
- Build up enough cash to cover at least two months’ sales value.
- Renegotiate debt.
- Negotiate with suppliers.
- Set aside money for taxes.
- Invest your own funds into the business.